The March jobs data is finally in. The ink was not yet dry before the rationalization, excuses and truth stretching began. We break down the jobs data and report the U.S. employment situation as we see it.
According to the Non-farm Payrolls report, the U.S. economy added 192,000 jobs in March. This was down from a prior revised 197,000 (up from an initial reading of 175,000). Private Payrolls added 192,000 jobs as well. This was up from a prior revised 188,000 (up from 162,000). Governments added no net new jobs. Manufacturing Payrolls lost 1,000 jobs, but the February data were revised higher to 19,000 from an initial read of 6,000. The Unemployment Rate held steady at 6.7% as labor force participation increased to 63.2% from a prior 63.0%.
Average Hourly Earnings grew at a slightly slower pace of 2.1% (versus a prior 2.2% and a Street consensus of 2.3%. Average Weekly Hours edged up to 34.5 from a prior 34.3 (up from 34.2 hours). The U-6 Underemployment Rate ticked higher to 12.7% from a prior 12.6%.
In spite of Non-farm Payrolls coming in below the Street consensus estimate of 200,000 (as well as the whisper estimate of 250,000 and the Bond Squad estimate of 215,000) today’s report was not a miss, at least not in our eyes. Remember, we have been of the opinion that many businesses began their spring hiring early (in conjunction with an early start for spring sales promotions) in February. We have written several times that the March Payrolls data could be somewhat disappointing as the snap-back would be milder than many economist believed because there would be less weakness from which to snap back. Bond Squad’s take was: If the February job growth was in the neighborhood of 175,000 (as originally reported), we could see a mild job growth surge to 215,000. Net/net, we expected two-month job growth for February and March to be in the neighborhood of 390,000. That is darn close to the two-month job growth of 389,000 (197,000 +192,000) the data indicate.
We would like to add a caveat to our outlook. There could be further revisions. The February and March data could (and probably will) be revised higher or lower. However, we do not believe that the data will be revised to the degree which indicates a dramatic acceleration in hiring in March. We believe that April could deliver mid-200,000 job gains. However, we do not believe that a strong April would be a harbinger for job growth shifting into a higher gear. We believe that 2014 job growth will average right around the 200,000 job per month area. Although it appears unspectacular, 200,000 jobs per month outpace the growth of the U.S. working age population by about 30,000 to 40,000.
Here lies the rub. In the past, the working age population would grow at a pace of 200,000 to 250,000 per month. The population is growing more slowly these days. Thus, today’s above trend job growth probably resembles yesterday’s trend job growth. When all things are considered, the economy is much closer to normal than many experts would like to believe (or admit). That would be the new normal.
Pay close attention to wage growth (or the lack thereof). It is forcing consumers to make difficult choices. The recent trend has been to buy new cars (with six-year to eight-year loans) and cutting back on consumer staples (see the WSJ article discussing reduced spending on consumer staples). This is something which we have discussed many times. Consumers have fairly tight budgets. They might buy new cars via long-term loans at fairly low rates to be able to get to their job(s), but with household budgets fairly tight, spending cuts have to come in other areas. It is for this reason that we do not believe that the impressive SAAR auto sales report of an annualized 16.33 million is indicative of a U.S. economy which is poised to break out.
Lastly, it has been reported that the private sector has now recovered almost all of the 8.7 million jobs lost during the recessions. Pundits and political types cheered. However, what they did not (and will not) tell you was that during that time the working age population expanded by more the 9,000,000 people (about 165,000 per month for five years since the recession ended in Q2 2009). The U.S. is on track to recover all of these jobs… during the next decade.
As a result of the mildly disappointing (but structurally consistent) employment data, the price of the 10-year Treasury note is up 11/32s to yield 2.76%. “3.00% we hardly knew ye.”
By Thomas Byrne – Director of Fixed Income – Investment Consultant
Thomas Byrne brings 26 years of financial services experience to Wealth Strategies & Management LLC. He spent the last 23 years as Director of Taxable Fixed Income for Citigroup, Inc. and predecessor firms in New York, NY. During the course of his long fixed income career, Mr. Byrne was responsible for trading preferred stock, corporate bonds, mortgage backed securities, government debt, international debt and convertible bonds. Mr. Byrne was also responsible for marketing, sales, strategy and market commentary within the taxable fixed income markets.
- November 2012 – Present, Wealth Strategies & Management LLC, Stroudsburg PA
- December 2011 – November 2012 – Bond Squad, Kunkletown, PA
- April 1988 – December 2011, Citigroup and predecessor firms, New York, NY
- June 1986 – March 1988 – E.F. Hutton, New York, NY